Hang Seng Index and Mainland China Equities Advance on PBoC Manoevers

US Markets Mixed as Treasury Yields Climb

On Monday, October 21, US equity markets had a mixed start to the week. The Nasdaq Composite Index advanced by 0.27%, while the Dow and the S&P 500 declined by 0.80% and 0.18%, respectively.

10-year US Treasury yields gained 11 basis points to end the session at 4.196%, impacting demand for riskier assets. Rising crude oil prices, the upcoming US Presidential Election, and the Fed rate path likely pushed yields higher.

According to the CME FedWatch Tool, the chances of a 25-basis point December Fed rate cut dropped from 76.8% (October 18) to 64.8% (October 21), signaling a higher-for-longer Fed rate path.

US Conference Board Leading Index Falls Again

The US Conference Board Leading Economic Index (LEI) declined by 0.5% in September, following a 0.3% fall in August. Over six months, the Index was down 2.6%, a sharper decline than the 2.2% fall during the previous six-month period.

Justyna Zabinska-La Monica, The Conference Board Senior Manager, Business Cycle Indicators, commented on the September data, stating,

“Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board expectation for moderate growth at the close of 2024 and into early 2025.”

Rising yields stemming from geopolitical tensions, the approaching US election, and the Fed rate path set the tone for the Tuesday Asian session.

People’s Bank of China Conducts First SFISF Operation

The People’s Bank of China (PBoC) made headlines after conducting its first operation of the Securities, Funds, and Insurance Companies Swap Facility (SFISF).

Earlier this month, the PBoC announced a 500 billion Yuan SFISF to provide liquidity to equity-holding financial institutions. The SFISF enables financial institutions to pledge bonds, stock ETFs, and CSI 300 stocks to obtain liquidity to access funds and increase stock holdings.

The PBoC move follows Monday’s Loan Prime Rate cuts aimed at boosting lending and private consumption.

Hang Seng Index and Mainland China Advance on PBoC Policy Maneuvers

Shifting the focus to the Asian equity markets, the Hang Seng Index edged up 0.03% in Tuesday’s morning session. The PBoC countered the effects of rising US Treasury yields, with real-estate sector stock and securities brokers leading the gains.

The Hang Seng Mainland Properties Index advanced by 0.61%, with Longfor Group Holdings Ltd (0960) and Shimao Group Holdings Ltd. (813) rallying 3.24% and 2.92%, respectively. Beijing’s stimulus measures targeting the real estate sector bolstered demand for real estate stocks.

Hong Kong securities brokers benefited from the SFISF News. GF Securities Co. Ltd. (1776) surged by 3.13%, with Guolian Securities Co. Ltd (1456) rising by 1.40%.

However, tech stocks limited the morning gain, with Alibaba (9988) and Baidu (9888) seeing declines of 0.20% and 1.98%, respectively. Rising US Treasury yields impacted the tech sector.

Mainland China’s equity markets cheered the latest PBoC move, with the CSI 300 and Shanghai Composite advancing 0.42% and 0.45%, respectively.

Nikkei Tumbles Despite USD/JPY Return to $150

On Tuesday, the Nikkei Index slid by 1.43% in the morning session. A stronger USD/JPY pair failed to offset the effects of higher US Treasury yields, impacting demand for Nikkei-listed stocks.

Tech stocks suffered heavy losses, with Tokyo Electron (8035) and Softbank Group Corp. (9984) declining by 2.36% and 2.11%, respectively.

ASX 200 Slides on Rising Treasury Yields

On Tuesday morning, the ASX 200 Index tumbled by 1.42%, tracking the Dow’s overnight losses. Banking and mining stocks retreated on higher US Treasury yields.

Mining giants BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) declined by 0.93% and 1.03%, respectively. Banking stocks Commonwealth Bank of Australia (CBA) slid by 1.71%, with National Australia Bank (NAB) down by 1.67%. Higher US Treasury yields reduce buyer demand for high-yielding Aussie bank stocks.

Gold-related stocks bucked the trend as gold prices climbed to record highs. Northern Star advanced by 0.11%.

Looking Ahead

Investors should remain alert, with fiscal stimulus from China, the Middle East, and central bank commentary requiring consideration. Trends in the USD/JPY will likely steer the Nikkei Index, while US Treasury yields and US futures could impact overall market sentiment.